[XXXXXXXX XXXXX LETTERHEAD]
April 2, 1999
The Board of Directors of
Sundance Homes, Inc.
00 Xxxx Xxxx Xxxxxx
Xxxxx 0000
Xxxxxxx, XX 00000
Dear Committee Members:
We understand that Sundance Homes, Inc. ("Sundance" or the "Company") has
entered into a Sale and Purchase Agreement dated April 2, 1999 with Centex
Homes ("Centex") in which Sundance will sell substantially all the assets of
its suburban home building operations to Centex. Under the terms of the
agreement, Centex will pay approximately $60.0 million in cash at closing for
selected developed and undeveloped lots, work in process, and other assets of
Sundance's subsidiaries Rembrandt Homes, Inc., Sundance Suburban Properties,
Inc. and other entities of Sundance's suburban home building operations (the
"Divisions" hereinafter). The precise amount of cash to be received is
determined by a complex formula reflecting the fact that during the period
between the signing of the Sale and Purchase Agreement and the closing of the
transaction, Sundance will be continuing to operate in the normal course of
business, which means it will be closing sales of finished homes to purchasers
and continuing construction of homes-in-progress, called "work-in-process". To
the extent that the number of finished homes which are sold prior to the
closing date of the transaction varies from the number originally estimated,
the actual purchase price will vary from the estimated purchase price. If a
greater number of finished homes are sold, the actual purchase price will be
less than the estimated purchase price, but, of course Sundance will retain
the proceeds from the sale of these finished homes. Conversely, if fewer
finished homes are sold than originally estimated, the actual purchase price
will be more than the estimated purchase price. Additionally, if the amount of
construction work completed on the homes-in-progress on the closing date of
the transaction is more or less than the amount originally estimated, the
actual purchase price will be more or less, respectively, than the estimated
purchase price, but in any event, Sundance will be reimbursed for the cost of
all such construction work invoiced prior to the closing date. Thus, these
potential variances in the actual cash received at closing as compared to the
estimated purchase price will not materially affect the financial benefits of
the proposed transaction. Such transaction and all related transactions
identified to us are referred to collectively herein as the "Transaction."
You have requested our opinion (the "Opinion") as to the maters set forth
below. The Opinion does not address the Company's underlying business decision
to effect the Transaction. We have not been requested, and did not solicit
third party indications of interest in acquiring all or any part of the
Company. Furthermore, at your request, we have not negotiated the Transaction
or advised you with respect to alternatives to it.
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. reviewed the Company's annual reports to shareholders for the fiscal
years ended 1993, 1997, and 1998; annual reports on Form 10-K for the
fiscal years ended 1996 through 1998; quarterly reports on Form 10-Q for
the quarter ended December 31, 1997 and 1998; Company-prepared financial
statements for the year ended September 30, 1998 and for the quarters
ended December 31, 1997 and 1998 for the Divisions, which the Company's
management has identified as being the most current financial statements
available.
2. reviewed copies of the following agreements: the Sale and Purchase
Agreement by and among Sundance Homes, Inc. and its subsidiaries and
Centex Homes dated April 2, 1999 ("Sale and Purchase Agreement");
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3. reviewed a draft of the preliminary proxy statement to be filed April 5,
1999 (Draft dated April 2, 1999);
4. met with members of the senior management of the Company to discuss the
operations of Sundance, Rembrandt Homes, Inc., Sundance Suburban
Properties, Inc. and other entities of Sundance's suburban home building
operations; the current financial condition of Sundance in regard to its
lending arrangements; the alternatives available to Sundance to
restructure its debt with and without the proposed sale; the anticipated
focus of Sundance after the proposed sale; and met with representatives
of the Company's counsel to discuss the proposed sale and related
matters;
5. visited the company's offices located at 00 Xxxx Xxxx Xx., Xxxxxxx, XX;
6. reviewed copies of certain real estate appraisals provided by Sundance;
7. reviewed the certificate of the Company's chief financial officer
addressed to Xxxxxxxx Xxxxx dated March 19, 1999 and schedules attached
to the certificate;
8. reviewed the historical market prices and trading volume for the
Company's publicly traded securities;
9. reviewed certain other publicly available financial data for certain
companies that we deem comparable to the Company, and publicly available
prices and premiums paid in other transactions that we considered
similar to the Transaction;
10. reviewed drafts of certain documents to be delivered at the closing of
the Transaction; and
11. conducted such other studies, analyses and inquiries as we have deemed
appropriate.
As you are aware, certain schedules to the Sale and Purchase Agreement have
not been finalized; the only documentation with respect thereto that we have
received is referred to above in Items 2 and 7. Accordingly, this Opinion is
subject to the assumption that the final schedules will conform in all
material respects to the provisions and representations contained in Items 2
and 7 above. At the request of the Board, Xxxxxxxx Xxxxx is prepared to review
the final schedules to the Sale and Purchase Agreement to determine whether
they conform in all material respects with the Company's representations made
as of the date of this Opinion. Said determination will be provided to the
Board under separate letter. Xxxxxxxx Lokey's review of the final schedules
will not constitute an updated analysis or bring-down opinion to a date
subsequent to the date of this Opinion.
This Opinion is furnished solely for your benefit and may not be relied
upon by any other person without our express, prior written consent. This
Opinion is delivered to each recipient subject to the conditions, scope of
engagement, limitations and understandings set forth in this Opinion and our
engagement letter, and subject to the understanding that the obligations of
Xxxxxxxx Xxxxx in the Transaction are solely corporate obligations, and no
officer, director, employee, agent, shareholder or controlling person of
Xxxxxxxx Xxxxx shall be subjected to any personal liability whatsoever to any
person, nor will any such claim be asserted by or on behalf of you or your
affiliates.
We have relied upon and assumed, without independent verification, that the
financial information provided to us has been reasonably prepared and reflects
the best currently available estimates of the financial results and condition
of the Company, and that there has been no material change in the assets,
financial condition, business or prospects of the Company since the date of
the most recent financial statements made available to us.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Company and do not assume any
responsibility with respect to it. We have not made any physical inspection or
independent appraisal of any of the properties or assets of the Company. Our
opinion is necessarily based on business, economic, market and other
conditions as they exist and can be evaluated by us at the date of this
letter.
Based upon the foregoing, and in reliance thereon, it is our opinion that
the consideration to be received by the Company in connection with the
Transaction is fair to the Company from a financial point of view.
XXXXXXXX XXXXX XXXXXX & XXXXX FINANCIAL ADVISORS, INC.
/s/ Xxxxxxxx Xxxxx Xxxxxx & Xxxxx Financial Advisors, Inc.
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